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Thursday, October 11, 2012

The United States has filed a complaint against three related companies
that bought and sold consumer credit reports, the Justice Department
announced today.
The government’s complaint charges these companies with violating the Fair Credit Reporting Act (FCRA).
The companies have agreed to pay a $1.2 million civil penalty to resolve these charges.

In a complaint filed Oct. 9, 2012, the United States alleged that Direct
Lending Source Inc., and Bailey & Associates Advertising Inc., both
Florida corporations, Virtual Lending Source LLC, based in San Diego,
Calif., and the principals of all of these entities, Robert M. Bailey,
Jr. and Linda Giordiano
, violated the FCRA
by failing to comply with provisions forbidding the sale of credit
reports without a “permissible purpose.” The complaint alleges that the
defendants purchased thousands of “pre-screened” consumer lists, or
collections of credit report data. The only permissible purpose under the Act for using such
prescreened lists is to make “firm offers of credit or insurance” to
consumers. However, the complaint alleges that the
defendants re-sold the lists to dealers who marketed loan modification,
debt relief and credit repair services rather than making firm offers
of credit. According to the complaint, some of the dealers who purchased
the defendants’ credit report data have become the subject of law
enforcement actions or warnings involving fraud committed against
consumers in financial trouble.

The complaint also alleges that the defendants did not take reasonable
steps to identify the ultimate purchasers of the credit reports. In some
cases, according to the complaint, the defendants sold lists to brokers
who then re-sold them to unidentified entities.

“The sensitive financial information in credit reports must be
protected from those who would use it to target vulnerable consumers for
sham offers,” said Stuart Delery, Acting Assistant Attorney General for
the Civil Division. “We will work with the Federal Trade Commission to
aggressively enforce the laws that safeguard these reports.”

Along with the $1.2 million civil penalty, the defendants agreed to
injunctions against future FCRA and FTC violations in a proposed consent
decree that must be approved by the court. The proposed order would
prohibit the defendants from using, obtaining or reselling consumer
reports for unauthorized purposes. The proposed order also would
prohibit the defendants from selling consumer reports in connection with
solicitations for debt relief and mortgage relief services that charge
advance fees.

The Federal Trade Commission (FTC), which oversees the FCRA, referred the case to the Department. The lawsuit, United States v. Direct Lending Source et al., was filed in the Southern District of California.

Acting Assistant Attorney General Delery thanked the FTC for referring
this matter to the Department. The Consumer Protection Branch of the
Justice Department’s Civil Division brought the case on behalf of the
United States.